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1.
Information and Knowledge Management
ISSN 2224-5758 (Paper) ISSN 2224-896X (Online)
Vol.3, No.9, 2013
www.iiste.org
Innovation in Bank Payment Systems and Related Services among
Selected Commercial Bank Branches in Wa Municipality
William Angko
Department of Banking and Finance, School of Business and Law, University for Development Studies,
P. O. Box UPW 36, Wa Campus. Email: angwillie@hotmail.com/wangko@uds.edu.gh
ABSTRACT
Innovation in bank payment systems and related new ways of banking in Ghana is radically changing the face of
banking and its impact on customers and their satisfaction. Underlying this innovative initiative is a general
understanding that ensuring access to the fundamental tools of a digital society is one of the most significant
investments the banking world can make for the future. This main objective of the is to evaluate the perceptions
of banking customers on the use of innovative payment systems on banking services in Ghana. The study
focused on customers with banks that have at least one form of technological innovation. The results of the study
generally indicate that, innovations in bank payment system through electronic delivery channels have
contributed positively to the provision banking services and the growth of the banking system in Ghana. It also
revealed that, the major innovations in bank payment system includes; Automated Teller Machines (ATMs),
Telephone Banking, PC-Banking, Mobile Banking, SMS Banking, E-zwich, Mobile Money, Internet Banking,
Credit and debit cards, Smart cards, Electronic billing and payment systems
Keywords: Innovation, Banking systems, Payment systems, Electronic payments
1. Background
Innovation in bank payment systems and related new ways of banking in Ghana is radically changing the face of
banking and its impact on customers. Underlying this innovative initiative is a general understanding that
ensuring access to the fundamental tools of a digital society is one of the most significant investments the
banking world can make for the future. Thus, the significance of innovations is not in the technologies as such,
but in the possibilities they open up for access to facilities, knowledge, information, communications and the
elements of ever increasing importance in present economic and social interaction, Annon, (2003), Consequently
innovative banking practices are rapidly taking a centre-stage in development planning and policy making at all
spheres of life in the banking industry. Innovations in bank payments systems and in particular, electronic
payment systems and related new ways of banking in Ghana being developed to support the traditional ways of
banking cannot be examined in isolation
A failure to place these developments into proper context is likely to result in undue focus on the various
initiatives to develop electronic forms of payment without a proper reflection on the broader implications for the
existing payment systems. Cash payments, cheques and other paper credits were mainly the traditional mode of
payment in Ghana until the recent development of alternative methods of payments in the Ghanaian banking
sector. In Ghana, majority of individual payment transactions involve goods and services being exchanged for
cash that are made face to face, i.e. both buyer and seller are physically present.
Furthermore, a high percentage of individual non-cash payments continue to involve the exchange of paper in
some form. Electronic payments occurs when the instructions to pay are generated and received electronically
and remain in the exclusive domain of an electronic network that has been specifically designed for handling
high value payments. Examples of such innovations in the Ghanaian banking systems include; Credit Cards
payments, Debit cards, Stored Value Cards, Automated Teller Machines (ATMs), Telephone banking, personal
computer banking, internet banking, branch banking, the Electronic Funds transfer at point of Sale (EFTPoS),
Electronic Funds Transfer and Inward Remittances such as Western Union and Moneygram (Abor 2004).
Despite the advancement made in banking through innovation in bank payment systems, several problems still
exist in the Ghanaian banking sector. The payment system is currently facing a multiplicity of seemingly
conflicting pressures, creating complex challenges for financial institutions and their IT managers. These have
been compounded by technological changes (especially those provided by the Internet) that have created
opportunities for new entrants to propose new ways of delivering payment services, accelerating the speed of
change while reducing costs. The rapid concern for Internet banking is worth mentioning. Another rapidly
approaching threat is that posed by telecommunications companies as they look for new revenue streams by
exploiting the ubiquity of mobile phones to provide mPayment (popularly known as mobile-banking/services.
Financial institutions are faced with mounting regulatory requirements, from national constraints, card scheme
requirements, bureaucratic procedures, to name but a few. Compliance has become a complex and critical issue,
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Information and Knowledge Management
ISSN 2224-5758 (Paper) ISSN 2224-896X (Online)
Vol.3, No.9, 2013
www.iiste.org
absorbing the time and effort of industry experts and requiring continual monitoring. The more the payment
instruments are harmonised, the less those payment instruments are potential differentiators between the banks /
acquirers. In this way, the cards payment business becomes more and more a cost-driven business, based on high
volumes needed to achieve the necessary scale. As a result, some banks will need to reconsider their current
business models in payments and move towards a more industrialized scale and method of processing. Strong
cost pressures in the transaction processing mass-market is leading to a search for added-value services and
niche offerings from banks or merchants.
Banks now have to, within a short time-frame, adapt their new procedures and customer information accordingly
to increase transparency, faster incident management, and withstand the test of competition. While the use of
ATM (with its associated MasterCard, Visa platforms) programs have decrease physical fraud in Ghana, There
are new security challenges for banks in securing remote card payments and online banking operations. The
number of reported fraud cases is increasing and many customers are losing trust for these new methods of bank
payment. There is the need therefore for anti- fraud tools to critically monitor these channels.It is widely
recognized that safe and efficient retail payment systems enhance the effectiveness of the financial system, boost
consumer confidence and facilitate the functioning of commerce (BIS, 2003). Conceptionally, payment systems
are coined as being two-sided markets (Rochet and Tirole, 2006). Virtually every economic transaction involves
the use of a payment instrument, such as cheques, electronic funds transfers, etc. (Berger et al., 1996). Over the
past decades, the payments business has witnessed important ongoing challenges and opportunities, comprising
regulatory changes, increased consolidation and competition and technological advances. As a result, today’s
banking and payments business differs substantially from that in the past. At present, these developments are
being intensified by the recent financial market turmoil, which may trigger fundamental changes in the business
model for retail banking and payments.
According to (Sarpong, 2003), long queues; long distance traveling and time wasting are the major
characteristics of the payment system in Ghana. These usually affect business activities and ultimately economic
development. Banks in Ghana are yet to realize the full benefits of the innovations in bank payment systems and
other related new ways of payments. These innovations may include electronic payment such as the use of cards,
automated teller machines (ATM), the Internet, mobile phones, and etc. (Sarpong, 2003). The payments and
clearing system in Ghana is yet to take advantage of its full potential in developing alternative and innovative
payments systems. There is no central clearing system to clear debit card transactions between banks. Currently,
there are only limited opportunities for commercial banks to undertake inter-bank clearance in Ghana. According
to (Abor, 2004, Sarpong 2003), many people have been holding large sums of money outside the banking system
as a result of the difficulties they expect to go through in either making withdrawals or making payment.
(Sarpong, 2003). This situation is worsened by long queues at the end and beginning of each month as people
come in to collect their monthly wages or salaries.
Advancements in computer technology in Ghana led to the banks networking their branches and operations,
thereby making branch banking fully operational. Barclays Bank (Gh.) and Standard Chartered Bank (Gh.) were
the first to consider such very important electronic innovations in the Ghanaian banking industry, which changed
the bank payments system in the country. ATM has been the major innovation in banks payment systems the
world over. A number of banks have taken up the initiative to offer innovative payment systems. Particularly in
Ghana, the Trust Bank was the first to offer ATM services in 1995. Many more commercial Banks have
followed this innovation process. The Ghana Commercial Bank started its ATM in 2001 in collaboration with
Agricultural Development Bank. Today all banks (including some savings and loans company’s) currently
operate their ATMs in Ghana. The ATM has been the most successful delivery medium for consumer banking in
this county. Customers consider it as important in their choice of banks, and banks that delayed the
implementation of their ATM systems, have suffered irreparably. Other technological innovations that have
taken place in the Ghanaian banking are the various electronic cards, which the banks have developed over the
years. The first major cash card is a product of Social Security Bank, now SG-SSB, introduced in May 1997.
Their card, ‘Sika Card’ is a value card, onto which a cash amount is electronically loaded. Standard Chartered
Bank launched the first ever debit card in this country in 2001.
Study Objectives
Generally, the study seeks to examine the contribution of innovations in bank payment system to the
development of the banking sector in Ghana. Specifically, this will be achieved through achieving the following
objectives;
• Identify the form of innovations in bank payment systems that have taken place among commercial
banks in Ghana.
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ISSN 2224-5758 (Paper) ISSN 2224-896X (Online)
Vol.3, No.9, 2013
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Examine how these innovation have affected the banking behaviour of bank customers
Identify the possible constraints faced by customers using the IT innovation
Examine the knowledge of IT innovation in bank payment in Ghana
2. ELECTRONIC BANKING
E-banking can be defined as the deployment of banking services and products over electronic and
communication networks directly to customers. E-banking is about using the infrastructure of the digital age to
create opportunities both local and global transactions. E-banking enables the dramatic lowering of transaction
costs, and the creation of new types of banking opportunities that address the barriers of time and distance.
Banking opportunities are local, global and immediate in E-banking. E-banking also means developing new
relationships with customers, regulatory authorities, suppliers, and banking partners with digital age tools.
Reasons for the adoption of E-banking by banks
Electronic Banking has become attractive and preferred channel of service delivery because of; the increasing
penetration of personal computers has made the cost of procuring ebanking services easy and cheaper. The
availability of broadband internet services through digital Subsciber Lines (DSL), wireless and mobile internet
has made it relatively easier access to the Internet. The wider diffusion of mobile phones with SMS facilities and
also improved communication infrastructure e.g LAN, WAN, Radio, Satellite technologies.
Benefits of E-banking
1. Cost savings for both the bank and the customer
2. Offer convenience and flexibility with online transactions
3. Delivery of banking products to the doorsteps of the customer.
4. Reduction in the use of cash for transactions.
5. Provision of 24/7 Banking Services
6. Prevention of customers from carrying cash which can be an attraction for robbery.
7. Decongestion of Banking Halls
2.1 Electronic Delivery Channels and Products
Electronic delivery channels and products are systems that enable financial institution customers, individuals or
businesses, to access accounts, transact business, or obtain information on financial products and services
through a public or private network. In Ghana, the following channels are mostly used;
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Automated Teller Machines (ATMs)
Telephone Banking
PC-Banking
Mobile Banking
SMS Banking
E-zwich
Mobile Money
Internet Banking
Credit and debit cards
Smart cards
Electronic billing and payment systems
Automated Teller Machines (ATMs)
An automated teller machine or automatic teller machine (ATM) (also called cash machine, ATM Scrip to Cash
machine, "bank machine" or "ABM", "autoteller" or guichet) is an electronic computerized telecommunications
device that allows a bank's customers to directly use a secure method of communication to access their bank
accounts, order or make cash withdrawals and check their account balances without the need for a human bank
teller (or cashier). Some ATMs allow withdrawals funded by clerical staff in retail merchant locations. The
clerical staffs are not considered bank tellers. Many ATMs also allow people to deposit cash or cheques, transfer
money between their bank accounts, top up their mobile phones' pre-paid accounts or even buy postage stamps.
Smaller indoor ATMs dispense money inside convenience stores and other busy areas. ATMs rely on
authorization of a transaction by the card issuer or other authorizing institution via the communications network.
Benefits of the ATM Service
• To Ease Congestion at the Banking Halls
• To offer 24hr Banking Services to customers
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Information and Knowledge Management
ISSN 2224-5758 (Paper) ISSN 2224-896X (Online)
Vol.3, No.9, 2013
www.iiste.org
• Increase the Profitability of the Bank by charging for the ATM services
• Advertisement of Bank’s own Services as well as Third Party products to generate revenue
• Provision of International Network access to member banks such as Visa, Master Card etc.
• Off-site Banking Through standalone ATMs
• Selling Mobile Top-ups and Tickets
• To keep up with Competition
• Access to National Switch
Services Available on ATMs
• Cash Withdrawal
• Balance Enquiry
• Mini Statement
• PIN Change
• Transfers from one Account to the other
• Cheque Book Requests
• Statement Requests
• Mobile Top Ups – Tigo, Vodafone, MTN
• Utility Payments – ECG, GWCL
Telephone Banking
Telephone banking is a service feature offered by many banking institutions. The process involves using the
keypad on a touch-tone telephone to perform a variety of banking functions. Along with traditional banks, phone
banking is also utilized extensively by online banking institutions, including banks that conduct business
primarily with the use of telephone technology. For telephone banking, telephone software is integrated with the
banking software application. The software picks balances from the banking application and puts it in an
interactive voice response (IVR) system. When you subscribe to this service a pin code is given to you and after
you dial a menu follows in the form of a voice prompt and options like check balance, statement request, cheque
book request etc are given to select the required response.
Advantage
• Bank customers could call any time of the day or night and check the status of their accounts.
• There are several ways that a telephone banking service may be configured e.g voice recognition, use
of login credentials
• customer can use telephone banking to request information on other services the bank offers
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It is also being utilized by virtual banks that rely heavily on telephone and Internet access
to process transactions and provide information to customers.
Convenient for consumers who may not carry handheld devices that are Internet ready, or who are
uncomfortable with using online banking for some reason.
PC-Banking
PC banking is your personal bank branch, open for business day and night. With PC banking you connect over a
secure Internet connection and can do all your banking transactions from your PC: your payments, investments,
savings and so on. PC banking is mostly used by corporate customers with large accounts. The idea is to give
corporate direct access to the bank’s software because of the volume and frequency of their transactions with the
bank to do their transfers themselves and also to avoid delay of processing transactions thereby bringing banking
services to the house of the customer. PC banking is computer specific in that the customer’s computer is
registered on the bank’s network to the network card level, IP address and MAC address, which is the only
machine that will be allowed or accepted on the bank’s network. The difference between PC banking and
internet banking is that, PC banking is computer specific whiles internet banking is computer independent that is
to say you can use any computer anywhere for your transaction.
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Information and Knowledge Management
ISSN 2224-5758 (Paper) ISSN 2224-896X (Online)
Vol.3, No.9, 2013
www.iiste.org
Advantages
Anywhere, anytime: access your account where and when you want.
Fast: manage your payments, savings, investment fund subscriptions, etc. in a flash.
Safe: access is only possible with your personal codes and the Internet connection is highly secure.
Cheaper transactions: dedicated connectivity to the banking floor via the bank’s software.
Mobile Banking
Mobile banking (also known as M-Banking, mbanking) refers to provision and availment of banking and
financial services with the help of mobile telecommunication devices. It is the term used for performing balance
checks, account transactions, payments, credit applications and other banking transactions through a mobile
device such as a mobile phone or Personal Digital Assistant (PDA). Mobile banking is a new technology where
the banking application interfaces with software that runs on a mobile phone so that you request for your
balance, get your last 8 transactions and other things on the mobile phone. Mobile banking gives you an
application on your mobile phone with a drop down menu to select the service you want just like you are sitting
in front of your computer
Advantages
• The biggest advantage that mobile banking offers to banks is that it drastically cuts down the costs of
providing service to the customers.
• Additionally, this new channel gives the bank ability to cross-sell up-sell their other complex
banking products and services such as vehicle loans, credit cards etc.
• For service providers, Mobile banking offers the next surest way to achieve growth.
• Mobile banking is helping service providers increase revenues from the now static subscriber base.
• Also service providers are increasingly using the complexity of their supported mobile banking
services to attract new customers and retain old ones.
SMS Banking
SMS banking involves the use of short messaging on mobile phone. It is also a mobile phone service just like
mobile banking but the difference here is that it the bank gives you a short code messages on your mobile device
for example bal. will represent your balance and you send it to a short code which is built into the banking
software and that will return the message in the same short code format. Meaning that between you and the bank
the transaction is by SMS. SMS banking services are operated using both push and pull messages. Push
messages are those that the bank chooses to send out to a customer's mobile phone, without the customer
initiating a request for the information. Typically push messages could be either Mobile marketing messages or
messages alerting an event which happens in the customer's bank account, such as a large withdrawal of funds
from the ATM or a large payment using the customer's credit card, etc. Pull messages on the contrary are
messages initiated by customers making a request or enquiry on a service e.g request for bank statement, account
balance etc
Features
• Balance Enquiries (for book and available balance)
• Statement Enquiries (for the last five Transactions)
• Rates Enquiries
• Rates Equivalent (for the rate equivalent between two different currencies)
• SMS Account Enquires (for receiving a list with all the SMS-enabled accounts and cards).
• SMS alerts
• SMS block account message
• SMS Campaigns.
Benefits of SMS
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Corporate and Retail clients can have the convenience of banking from their offices without physically
moving to the bank’s premises.
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Enhances regular monitoring of the customers’ accounts
To Ease Congestion at the Banking Halls
To offer 24hrs Banking Services to customers
Increase the Profitability of Bank by charging for the service.
Advertisement of Banks own Services as well as Third Party products to generate revenue.
Off-Shore customers can easily open accounts with the bank
Differentiation of the Bank from Direct Competition
E-ZWICH
E-ZWICH utilises smart card technology to provide a common fully integrated platform for paying for goods
and services throughout the country based on biometric fingerprint identification. E-ZWICH technology allows
for a secure national payment system that manages the flow of funds between customers, merchants and
financial service providers. Customers are able to perform transactions at any bank no matter where their
traditional accounts are domiciled. All transactions occur between a client card and a merchant or a bank teller
card at a Point Of Sale (POS) terminal rather than through a host mainframe. This allows the e-zwich system to
operate in rural settlements that have very poor network infrastructure. The Ghana Interbank Payment and
Settlement System (GhiPSS) was established by Bank of Ghana to deploy the E-ZWICH technology. GhiPSS is
the legal entity that operates the E-ZWICH System Host.
Facts about E-zwich
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It is an account on its own right, that is, a personal computer in your pocket.
It is issued by an issuing Bank for existing customers or new customers.
Only one account of a customer’s traditional accounts can be linked to E-Zwich smart card.
It uses automated clearing system for settlement.
The card holder should be issued with the E-zwich smart card free of charge.
Customers do not need to have accounts with a bank before being issued with an e-zwich smartcard.
Only your fingerprint can be used to authorise transactions from your card. Therefore you cannot send
someone to withdraw money or buy something with your e-zwich card for you.
• The card holder pays some fees for his/her transactions.
• Companies cannot be hooked onto the E-Zwich where signatories to the account are more than one.
• E-zwich can perform Online and Offline transactions.
Benefits of E-zwich
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There is no minimum balance required on a smart card.
The smart card holder can spend and draw cash only when necessary, hence the there is no risk of
money being stolen.
Interest on funds is calculated on the current Savings Wallet balance at the end of each month.
There is an innovative application of technology which allows offline and online processing.
It is a national electronic switch which targets the banked and unbanked.
Due to its interoperability, customers of other banks can use any bank’s ATM or POS devices to
transact business.
Customers are secured as a result of the biometric identification (finger print).
Secure cash movement.
Banks will benefit by charging transaction fees.
Daily sales of merchants will be safe from robbers who might attack the them on their way to the bank.
Mobile Money
Mobile money or payment known also as Mobile wallet is an alternative payment method. Mobile money is
being adopted by the mobile phone companies to make transfers and transactions on account using a mobile
phone. The difference between mobile money and the other mobile technology applications is that there is no
direct integration into any banking software so that it runs independently. It is a prepaid service first you have to
load money on the mobile phone which is outside the banking software and then you later do the transaction.
You can do money transfer, payment for goods and services at merchant stores with mobile money. Instead of
paying with cash, cheque or credit cards, a consumer can use a mobile phone to pay for a wide range of services
and digital or hard goods such as music, videos, ringtones, online game subscription or items, wallpapers and
other digital goods.
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Information and Knowledge Management
ISSN 2224-5758 (Paper) ISSN 2224-896X (Online)
Vol.3, No.9, 2013
www.iiste.org
Internet Banking/Online banking
Online banking (or Internet banking) is a term used for performing transactions, payments etc. over the Internet
through a bank, credit union, or a building society’s secure website. This allows customers to do their banking
outside of banking hours and from anywhere Internet access is available. In most cases a web browser is utilized
and any normal Internet connection is suitable. No special software hardware, or connectivity is usually needed
by the user.
Advantages of online banking are
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Providing convenience for customers.
instant access to banking services
Ability to pay bills electronically.
transfer of funds between accounts
providing flexibility for customers
2.2 ELECTRONIC DELIVERY PRODUCTS
Credit and Debit cards
The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the
limits fixed by his bank. Credit Card is a post paid card. Debit Card, on the other hand, is a prepaid card with
some stored value. Credit card is a small plastic card issued to users as a system of payment. It allows its holder
to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the
card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can
borrow money for payment to a merchant or as a cash advance to the user. A debit card (also known as a bank
card or check card) is a plastic card that provides the cardholder electronic access to his or her bank account/s
at a financial institution. Some cards have a stored value with which a payment is made, while most relay a
message to the cardholder's bank to withdraw funds from a designated account in favor of the payee's designated
bank account. The card can be used as an alternative payment method to cash when making purchases. In some
cases, the cards are designed exclusively for use on the Internet, and so there is no physical card. However,
unlike credit cards, the funds paid using a debit card are transferred immediately from the bearer's bank account,
instead of having the bearer pay back the money at a later date. Debit cards usually also allow for instant
withdrawal of cash, acting as the ATM card for withdrawing cash and as a check guarantee card.
Merchants may also offer cash back facilities to customers, where a customer can withdraw cash
along with their purchase.
Smart Cards
Banks are adding chips to their current magnetic stripe cards to enhance security and offer new service, called
Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards. In addition,
these cards are highly secure, more reliable and perform multiple functions. They hold a large amount of
personal information, from medical and health history to personal banking and personal preferences. Smart cards
can provide identification, authentication, data storage and application processing. A single contact/contactless
smart card can be programmed with multiple banking credentials, medical entitlement, driver’s license/public
transport entitlement, loyalty programs and club memberships to name just a few.
Electronic Bill and Payment Systems
Electronic bill payment is a feature of online banking and mCommerce, allowing a depositor to send money
from his demand account to a creditor or vendor such as a public utility or a department store to be credited
against a specific account. The payment is optimally executed electronically in real time, though some financial
institutions or payment services will wait until the next business day to send out the payment. The bank can
usually also generate and mail a paper cheque to a creditor who is not set up to receive electronic payments.
Most large banks also offer various convenience features with their electronic bill payment systems, such as the
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ability to schedule payments in advance to be made on a specified date, the ability to manage payments from any
computer with a web browser, and various options for searching one's recent payment history: when did I last
pay Company X? To whom did I make my most recent payment? In many cases one can also integrate the
electronic payment data with accounting or personal finance software.
Features Electronic billing and payment systems
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Bill payment service
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Fund transfer
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Credit card customers
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Investing through Internet banking
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Recharging your prepaid phone
Shopping EMPIRICAL LITERATURE
Abor (2004) was concerned with technological innovations and banking in Ghana. Additional work by Deutche
Bank Research (2001), Vartanian (2000) and Birch (1998) looks at the future of electronic payments. Several
researchers have addressed the problem of retail payment, Ferguson (2000), Malek (2001), Bank for
International Settlements (2000), Mester (2000) and OECD Information Technology Outlook (2000) studied
various aspects of this subject. Abor (2004) analyses the perception of bank customers pertaining to the effect of
technological innovations on banking services in Ghana. A number of studies have also concluded that
information technology has appreciable positive effects on bank productivity; cashiers’ work, banking
transaction, bank patronage, bank services delivery, and customers’ services (Balachandher et al, 2001; Hunter,
1991; Yasuharu, 2003). In effect, it enhances savings mobilization and financial intermediation. Efficient
payment systems rely on non-cash payments, and that an efficient and reliable payment system facilitates
economic development. Annon, (2003), Carow and Staten (1999) used a logistic regression model to investigate
preferences of consumers in using debit cards, credit cards, and cash for gasoline purchases. Humphrey and
Hancock (1997) have provided an extensive survey of the payments literature. Using the Federal Reserve’s 1995
Survey of Consumer Finances (SCF), Kennickell and Kwast (1997) analyzed the influence of demographic
characteristics on the likelihood of electronic payment instrument usage among households. Payment services
are an important part of the banking industry, accounting for a significant part of its revenues and operational
costs. It is also considered as the backbone of banking activities as it is significantly associated with increased
market share of other bank business, e.g. the provision of credit and the evaluation of associated risks [Boston
Consulting Group (BCG), 2009]. BCG also reports that payments business accounts for 30-50 percent of bank
revenues, and is actually considered the most attractive element of banking business, in terms of income
generation, growth rates, and relatively low capital needs. Hirtle and Stiroh (2007) finds a significant link
between retail focus by the U.S. banks (retail loan and deposit shares and extent of branching network) and bank
stability although such focus also resulted lower return.
Effective payment services are important in helping banks to establish long-term relationships with their
customers, both private individuals and corporate clients. These services are strongly linked to other banking
services, e.g., deposits, as customers prefer to deposit money into a system in which they can obtain a good
payment service (Kemppainen, 2003, 2008). Against this background, banks perform better in countries with a
more developed retail payments business. From an economic perspective, efficient and safe payment systems
are important insofar as they facilitate real and financial transactions in advanced economies. Their production is
subject to economies of scale due to the significant investment in infrastructure needed to start the operation
(large fixed costs) and the relatively small marginal cost of services provided using the existing infrastructure.
Bolt and Humphrey (2007) provide evidence that standardisation of retail payment instruments across the euro
area is likely to result in economies of scale in payment services in Europe. Similar economies of scale effects
are to be gained in the European payment processing industry (Beijnen and Bolt, 2009). Berger and DeYoung
(2006) showed that technological progress has facilitated the geographic expansion of the banking industry.
Specifically, ATMs, POS terminals and similar shares and extent of branching network) and bank stability
although such focus also resulted in technologies that can potentially reduce the costs of asset convertibility for
households over time.(Berger et al., 1996).
Carlton and Frankel (1995) reported higher volumes and lower costs after the merger of competing ATM
systems. Analysing customer switching effects, Massoud et al. (2006) find that higher ATM surcharges result in
a greater market share of deposits of larger banks and a lower market share for smaller banks. The distribution
network of payment services plays a crucial role as it attracts customers to the bank and generates more revenue
in retail banking and other related business lines. At the same time, these retail payment transaction technologies
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reduce the labour cost for banks and have the potential to reduce the costs of handling cash. Columba (2009)
shows that transaction-technology innovation, i.e. the diffusion of ATM and POS technologies, has a negative
effect on the demand for currency in circulation, while the overall effect on M1 is positive. In other words,
transaction technologies and sophistication, e.g. ATM and POS networks, help banks to improve their overall
performance.
Amromin and Charkravorti (2009) show that demand for small-denomination currency decreases with greater
debit card usage and with greater retail market consolidation. Besides the direct impact on bank performance, we
also predict that retail payment transaction technologies have an intensifying effect on the relationship between
retail payment services and bank performance. Advanced retail payment transaction technologies will foster
innovation and growth in the retail banking sector. This will further create more value associated with retail
payment services for banks. On the other hand, if more retail payment transactions have been done through
ATMs or Post Office System instead of retail payments offices, banks can be more cost efficient and obtain more
profit. We believe that retail payment services have a larger impact on bank performance in countries with a
relatively high adoption of retail payment transaction technologies. There are several varieties of retail payment
instruments, like credit transfers, direct debits, card payments, e-money purchases, cheques, etc. Competition in
retail payment markets has commonly been seen as an important contributor to efficiency (BIS, 2003). In a very
competitive retail payment market, consumers have more choices to complete retail payment transactions and to
make transactions more quickly and efficiently. Competition among retail payment instruments may also
encourage retail payment providers to improve their service.
Additionally, a greater variety of retail payment instruments may result in more retail banking innovations.
Therefore, heterogeneity among retail payment instruments helps banks to improve their performance. The
European payments industry has undergone considerable change as electronic payment has increasingly gained
popularity. New payment technologies, particularly newer electronic methods for consumer payments that may
replace older paper-based methods, can potentially speed up settlement and reduce the financial costs of making
payments for bank customers (Berger et al., 1996; Humphrey et al., 2006; Humphrey and Vale, 2004).
Intuitively, the total cost of making payments for society might be expected to be high. In an early study, the
costs have been estimated to amount to as much as three percent of GDP (Humphrey et al. 2003). A number of
recent central bank studies provide more detailed estimates, especially where European countries are concerned.
Depending on the chosen approach and methodology, the estimated total costs in connection with the production
of payment services are in between 0.49 and 0.74 percent of GDP in 2002 (Brits and Winder, 2005; Banque
Nationale de Belgique, 2005; Gresvik and Owre, 2003). Moreover, in general, there is a positive relationship
between the use of electronic payment methods and the efficiency of the payment system. Significant potential
benefits from adopting technological innovations can be expected, but typically there are extraordinary costs
associated with the introduction of new payment methods. Humphrey et al. (1996) find that payment instrument
choices strongly depend on bank customers’ learning costs. In this paper, we examine whether the physical
distribution of 7 according to Scholnick et al. (2007) provides a survey of the literature on credit cards, debit
cards and ATMs.
Constraints to implementing Innovations
The level of bank payment systems modernization varies across countries. In industrial, transitional, and
developing economies, countries have faced a range of obstacles including their existing legal framework,
technical infrastructure, and maturity of banking systems. Payment system strategies undertaken in these
countries often have the involvement of the central bank and commercial banks in diverse ways. These
innovation theories to bank payment systems show how the strategies are developed under unique environments
of advanced and emerging banking systems and compare the involvement of the central bank and the private
sector in payment operations. They illustrate how ownership, pricing policies, and cost recovery may vary, and
how such factors may influence efficiency and innovation in terms of changes in paper-based and electronic
payment market shares. The rapid pace in which these new innovations are introduced may also pose risks to
consumers and the wider financial system if not properly regulated and supervised. Thus, the challenge is to
strike a balance between fostering new innovations and maintaining proper oversight of the associated risks to
avoid stifling innovation itself. The main challenges to the continuing modernisation of payment systems
theoretically are; financial stability, financial integration, trade liberalisation in financial services, and continuous
technological innovation.
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METHODOLOGY
A purposive and convenience sampling design was adopted to obtain participants for the study from the selected
commercial bank branches in the Upper West Region. The sample size was drawn from among Commercial
Banks in Ghana with branches in the Upper Wes Region. The banks in Ghana were sampled on the basis that
they have at least one form of IT innovation channel. In all six commercial banks branches were identified and
studied. The researcher also interviewed banking IT executives in the sampled banks to ascertain the form of IT
innovation introduced by their respective banks. A Sample of fifty (500) questionnaire were administered across
all respondents. The responses were measured with a five-point Likert-type rating scale, where strongly Agree
(SA) = 4; Agree (A) = 3; Strongly Disagree (SD) = 2; Disagree (D) = 1; and Neutral (N) = 0. A three sectional
questionnaire instruments was used to gather data for this study. The first section of the instrument will be a
demographic questionnaire. The second instrument of the questionnaire asked questions about customers’
perception about effects of the forms of innovation in bank payments system on service delivery. The final
section of the questionnaire asked questions about the constraints customers face in using any form of IT
innovation.
RESULTS AND DISCUSSION
Demographic Characteristics of Respondents
For operational purposes, the survey defined six age groups. Young people less than 20 years, range of ages 2029, 30-39, 40-49, 50-59 and 60 year and above. Majority of the respondents 440 representing 88% aged between
20 and 29 years. 30 each representing 6 percent were between the ages of 30-39 and 40-49 respectively. None of
the respondents were less than 20 years, and above 50 years. The survey made conscious efforts to achieve an
equal gender representation. However, the customer response data result that about 370 representing 74 percent
of the respondents were males and the rest of the 26 percent were females. This indicates that majority of the
customers interviewed were male. A large majority of respondents, 88 percent, said they were single while 12
percent described themselves as married. None of the respondents were widowed or divorced. Interestingly, all
the 500 respondents representing 100% of responses had some form of formal education. Occupationally,
majority of respondents, 36% described themselves as students, 10 % as businessmen, and 12% as public/Civil
Servants. Another 6% also described themselves as unemployed. All respondents operate an account with at least
one of the studied bank.
Table 1: Representation in Selected banks Branches?
Customers of Selected Bank
Frequency
Valid Percent
Barclays Bank Ghana Ltd (BBG)
85
17
Stanbic Bank
85
SG-SSB Ltd
85
Agricultural Development Bank (ADB)
85
Ghana Commercial Bank Ltd (GCB)
85
National Investment Bank (NIB)
85
First National Bank
75
Total
500
Source: Field Survey 2013
17
17
17
17
17
15
100
The types of IT innovation in bank payments utilized by customers were identified. Special focus is placed on
three major delivery channels namely ATMs, Telephone Banking, and Internet Banking. The information was
basically from personal interviews with customers of the selected bank branches. It was found that 450 out of
the 500 customers representing 90 percent of recent used at least one of IT innovation. The responses from
customers confirmed that banking innovation takes the form of ATM, Telephone banking, PC banking, Mobile
banking, SMS banking, E-zwich, Mobile banking, internet banking, Credit and debit cards, smart cards as well
as Electronic Billing and payment systems. These innovations in the bank payment system in Ghana reduce the
time involved in bank transactions. 100% of the respondents were aware on ATM as an innovation with majority
having some knowledge about the form of innovation taken place in the banking industry. Majority also agreed
that the time involved in transacting business with their banks can be reduced significantly with ATM, telephone
banking internet banking and the other forms of IT innovation.
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Table 2: Forms of form of IT Innovation in Banks payment system
Innovative Payment System
Frequency
Percent
Automated Teller Machines (ATMs)
500
100
Telephone Banking
400
80
PC-Banking
300
60
Mobile Banking
300
60
SMS Banking
225
45
E-zwich
150
30
Mobile Money
350
70
Internet Banking
300
60
Credit and debit cards
250
50
Smart cards
150
30
Electronic billing and payment systems
100
20
Total
500
100
Source: Field Survey 2013
The responses of customers about the effect of Technological Innovation on quality of products and service
delivery in bank payment system were ascertained. About 390 representing 78% of the customers who
responded agreed that IT Innovations ensures efficient quality products and service delivery. This is against only
22% who disagreed with the view. Another 380 representing 76% agreed that telephone banking improves
product quality and services delivery as against 24% that disagree with the view. 410 representing 82% shows
that internet banking Innovation enables banks to deliver efficient services to their customers. In all, internet
banking improves quality of products and service delivery in bank payments in Ghana. It was also confirmed
that, the advent of IT Innovation has led to increased bank charges. Even though 44% of the respondents
disagreed with this assertion in the case of ATM, 56% agreed that ATM Innovation has resulted in increased
bank charges. A contradictory finding appeared in the case of Telephone banking, SMS banking, PC banking
and internet banking. All the IT innovations in bank payments are viewed by customers to have reduced
transaction cost.
IT innovation and Customer Satisfaction
From table 11, out of a total of 500 respondents, 74%, 56%, 94% and 100% agreed that IT Innovation in the
form of ATM, telephone, internet baking and SMS banking respectively provides adequate responses to their
inquiries of products/services information, as against 26%, 38% and 6% who disagreed respectively. Overall, the
customers are generally satisfied with the IT innovations in bank payment systems. The willingness of customers
to continue saving with their banks was also established. 380 respondents representing 76% of the customers
agreed that they will continue to save with their banks and use ATM. 68% and 58% also believe that IT
Innovation in the form of telephone and internet banking discourages customers from their banks. This implies
most of the respondents, appear to be satisfied with the services and products offered by their respective banks
and so will continue to save with the banks. Specifically, about 60% agreed with varying degree that innovation
in bank payment has a positive effect on customer satisfaction, 20 % are indifferent with Innovation while others
20% disagrees that innovation increases their satisfaction. Majority of the respondents also agreed that
Innovations in bank payment system motivated them to operate with the selected Bank.
Table 3: Effects of IT Innovation on Customer Satisfaction
RESPONSE
FREQUENCY
Strongly Disagree
20
Disagree
80
Neutral
100
Agree
100
Strongly Agree
200
Total
500
Source: Field Survey 2013
50
PERCENTAGE
4
16
20
20
40
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Table 4: Motivated to operate with a Selected Bank due to IT innovation
RESPONSE
FREQUENCY
PERCENTAGE
Strongly Disagree
50
10
Disagree
80
16
Neutral
80
16
Agree
150
30
Strongly Agree
250
50
Total
500
100
Source: Field Survey 2013
Customers were asked to enumerate some of the problems confronting them in using innovations in bank
payment. Customers’ response to this part of the survey was very revealing. Problems range from ineffective
ATMs machines, illiteracy to poor internet access. Of the 500 response received from bank customers, majority
cited their inability to correct errors in ATMS as the major problem that needs a critically look. Other common
problems that the respondents cited includes; Illiteracy, cheating/ expensive bank charges, most ATMs are often
Out of order/Service, No money in ATMs. Out of the 500 customers surveyed, 30 (6. %) cited No money in
ATM and illiteracy as the major problems confronting them.
Table 5: Major constraints on ATM usage
Major ATM constraints
Missing response
cannot correct ATM errors
Costly
Illiteracy
it is a cheat
No money in ATM
Some ATMs are out of order
Total
Frequency
70
80
20
30
20
30
250
500
Valid Percent
14
16
4
6
4
6
50
100
Source: Field Survey, 2013
The major problems that customers encounter in using telephone banking include; expensive bank charges,
inability to access mobile phones, poor networks and ineffective response from banks. Out of the 50 respondents
in the survey, Majority of the respondents, 130 (26%) identified poor access to networks as the major constraints
to the use of Telephone banking in Ghana. Another 70(14%) mentioned expensive bank charges as their major
constraints. 30% of the respondents maintained that Ineffective response from the banks, difficulty in accessing
phones and problem in getting access of network services are their major constraints respectively.
Table 6: Major constraints on Telephone banking
Major Telephone banking constraints
Frequency
Valid Percent
Missing responses
210
42
ineffective response from bank
30
6
Cannot get access to phone
30
6
Expensive charges
70
14
difficult to access service
30
6
poor network
130
26
Total
500
100
Source: Field Survey 2013
Out of the 500 respondents, several constraints have been identified. Difficulty to access internet, illiteracy,
ineffective internet banking in most banks, slow and unreliable internets connection as well internet fraud are
among the major constraints mentioned in regarding the use of internet banking in Ghana. Specifically, majority
of the respondent’s 150 respondents representing 30% identified difficulty in accessing internet as the major
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constraint to the use of internet banking in Ghana. 18% of the respondents also mentioned illiteracy as a major
constraint. Another 6% and 4% found ineffective use of internet banking and internet fraud as the main
constraints hindering the use of internet banking in Ghana.
Table7: Major constraints on Internet banking
Major Internet banking constraints
Frequency
Valid Percent
Missing responses
80
16
difficult to access internet
150
30
Internet Fraud
20
4
Illiteracy
90
18
Ineffective
30
6
No privacy
20
4
Slow internet connection
110
6
Total
500
100
Source: Field Survey 2013
DISCUSSION
Banks have recognized that innovations in bank payments system represent an opportunity to increase profits
and their competitiveness in the banking sector. Currently, only few banks in Ghana are offering internet
banking (i-banking) as well as telephone banking. However, ATM is the most commonly available and used
innovation in bank payments system in Ghana. In the case of Telephone banking, has also taken a big leap with
its convenience and time. The services available with this system are ascertaining credible information about the
bank’s products, the customers’ complaints, bank statements and cheque book request and any other complaints
and inquiry. About 90% of the respondents have used one of three type of banking innovations in payments
system (ATM, telephone banking and/ internet banking.
Automated Teller Machines (ATMs)
Rose (1999), describes ATMs as follows “an ATM combines a computer terminal, record-keeping system and
cash vault in one unit, permitting customers to enter the bank’s book keeping system with a plastic card
containing a Personal Identification Number (PIN) or by punching a special code number into the computer
terminal linked to the bank’s computerized records 24 hours a day”. Once access is gained, it offers several retail
banking services to customers. They are mostly located outside of banks, and are also found at airports, malls,
and places far away from the home bank of customers. Banks tend to utilize this electronic banking device, as all
others for competitive advantage. Though ATMs have enjoyed great success because of their great utility, it has
been recognized that it is possible for banks to improve their competitive stance and profitability by providing
their clients with even more convenience (Abor, 2004). Barclays Bank of Ghana is the first Commercial bnak in
Ghana to introduce an ATM Machine that Accept Deposit electronically. The combined services of both the
Automated and human tellers imply more productivity for the bank during banking hours. Also, as it saves
customers time in service delivery as alternative to queuing in bank halls, customers can invest such time saved
into other productive activities. ATMs are a cost-efficient way of yielding higher productivity as they achieve
higher productivity per period of time than human tellers (an average of about 6,400 transactions per month for
ATMs compared to 4,300 for human tellers (Rose, 1999). Furthermore, as the ATMs continue when human
tellers stop, there is continual productivity for the banks even after banking hours.
Telephone Banking
“Telebanking (telephone banking) can be considered as a form of remote or virtual banking, which is essentially
the delivery of branch financial services via telecommunication devices where the bank customers can perform
retail banking transactions by dialing a touch-tone telephone or mobile communication unit, which is connected
to an automated system of the bank by utilizing Automated Voice Response (AVR) technology” (Balachandher
et al, 2001). According to Leow (1999), telebanking has numerous benefits for both customers and banks. As far
as the customers are concerned, it provides increased convenience, expanded access and significant time saving.
On the other hand, from the banks’ perspective, the costs of delivering telephone-based services are substantially
lower than those of branch based services. It has almost all the impact on productivity of ATMs, except that it
lacks the productivity generated from cash dispensing by the ATMs. For, as a delivery conduit that provides
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retail banking services even after banking hours (24 hours a day) it accrues continual productivity for the bank. It
offers retail banking services to customers at their offices/homes as an alternative to going to the bank
branch/ATM. This saves customers time, and gives more convenience for higher productivity.
Internet Banking
The idea of Internet banking according to Essinger (1999) is: “to give customers access to their bank accounts
via a web site and to enable them to enact certain transactions on their account, given compliance with stringent
security checks”. To the Federal Reserve Board of Chicago’s Office of the Comptroller of the Currency (OCC)
Internet Banking Handbook (2001), Internet Banking is described as “the provision of traditional (banking)
services over the internet”. Internet banking by its nature offers more convenience and flexibility to customers
coupled with a virtually absolute control over their banking. Service delivery is informational (informing
customers on bank’s products, etc) and transactional (conducting retail banking services). As an alternative
delivery conduit for retail banking, it has all the impact on productivity imputed to Telebanking and PCBanking. Aside that it is the most cost-efficient technological means of yielding higher productivity.
Furthermore, it eliminates the barriers of distance / time and provides continual productivity for the bank to
unimaginable distant customers.
CONCLUSION AND RECOMMENDATION
It was also found that banking innovation in payment system in the form of Automated Teller Machines
(ATMs), Telephone Banking, PC-Banking, Mobile Banking, SMS Banking, E-zwich, Mobile Money, Internet
Banking, Credit and debit cards, Smart cards, Electronic billing and payment systems reduces the time involved
in bank transactions. Out of 500 respondents, 450, 480 and 440 representing 90%, 96% and 88% agreed that the
time involved in transacting business with their banks can be reduced significantly with ATM, telephone
banking and internet banking innovation respectively. The results of the study generally indicate that, these new
delivery channels have drastically reduced the time involved in making bank transactions in commercial banks in
Ghana. Responses of customers about the effect of Technological Innovation on quality of products and service
delivery in bank payment system revealed that, 78% of the customers who responded agreed that ATM
Innovations ensures efficient quality products and service delivery. Another 380 representing 76% agreed that
telephone banking improves product quality and services delivery while 82% shows that internet banking
Innovation enables banks to deliver efficient services to their customers. The study therefore established that
internet banking improves quality of products and service delivery in bank payments in Ghana. Overall, the
customers are generally satisfied with the IT innovations in bank payment systems. Out of a total of 500
respondents, over 56% of the respondents agreed that IT Innovation in the form of ATM, telephone and internet
baking respectively provides adequate responses to their inquiries of products/services information. This implies
most of the respondents, appear to be satisfied with the services and products (ATM) offered by their respective
banks and so will continue to save with the banks. The major problems that customers encounter in using these
innovations in the bank payment system in Ghana includes; expensive bank charges, inability to access mobile
phones or internet, poor networks and ineffective response from banks, illiteracy, ineffective machines.
Recommendation
Although this study yielded important results about the perception of customers on innovations in bank payment
system in Ghana, there is much more research to be done. One recommendation is to conduct a further research
using a much larger, randomized sample and more standardized test to measure the level of customer satisfaction
on the various forms of bank innovations. This will help to improve the findings and allow us to generalize the
results to a larger and more diverse population. There are many other studies that could further the study of
innovative banking in Ghana. One would be to do a qualitative study that examines which factors are most
important to the choice of a particular banking innovation over the other.
REFERENCES
Abor (2004)Technological Innovations and Banking in Ghana:An Evaluation of Customers’ Perceptions.
International Journal of Business and Management Vol. 7, No. 3;
Amromin, G. and S. Chakravorti (2009) "Whither Loose Change? The Diminishing Demand for SmallDenomination Currency," Journal of Money, Credit and Banking, 41(2-3),pp. 315- 335.
B.van Ark et al.,(2003)"Services Innovation,Performance and Policy: A Review" June, 2003, Research Series
No6, The Hague
Beijnen, C. and W. Bolt (2009). "Size Matters: Economies of scale in the European payments market", Journal
of Banking and Finance 33, pp.203-210.
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